Governance issues for DeFi

Governance has been a hot topic in blockchain, especially with DeFi, which has been particularly hot this year.The full name of DeFi is decentralized finance, decentralization is its core attribute, and all decentralized projects face governance challenges.

First let’s DeFine these keywords:

What is governance?Governance is the question of how decisions are made in decentralized situations. Or, to use a more straightforward Definition: What is governance?Governance is voting!

Of course, this vote can be a real POS or DPOS vote, or it can be a computational vote like the POW, or it can be a broader vote of market competition. So, when it comes to DeFi specifically, what’s new about DeFi’s governance?

1. Only a few DeFi projects do not need to change the rules once they are released, and there are no governance issues.

At the thought of governance, the first thing that comes to mind is a few parties arguing for the revision of a rule, and finally even rise to personal attacks.

However, there are a few projects where the business is relatively simple and once released, its subsequent rules do not need to be changed at all and there are no governance issues.

FOMO3D belonged to this kind of projects(if FOMO3D was also DeFi), it was joked that FOMO3D was a cash offer, but not a fraud.Because its rules are public, and is determined in advance with the code, there is no room for fraud.

The reason why there is no governance problem with FOMO3D is that its business is relatively simple, which is a simple problem of winning prizes and distributing benefits, somewhat like a simple lottery system.This system is relatively simple to write with code, mainly does not need subsequent modification and adjustment.

The more basic the business, the simpler the rules.The less change there is in the future, the fewer governance issues there will be, and even the ability to actually execute the entire code without human intervention.

2. Centralized management will exist for a long time.

However, projects like FOMO3D are rare, and the duration of FOMO3D business is relatively short.If it had lasted much longer, something unmanageable would have happened later, forcing it to change the rules, which would have raised the issue of governance.

The rules are a bit more complicated, like the popular “borrowing is mining”, which is not just a business but a product line.The following will involve a lot of adjustments, such as the adjustment of the incentive mechanism of “borrowing is mining”, the quantity of mining, the distribution speed, the borrowing rate, the maturity and so on.

Because these businesses need to be connected with real life, they need to constantly adjust the rules in order to adapt to the new situation. If the rules are fixed in advance, it will be inconsistent with real life.

Nowhere is this more evident than in Bitcoin.Bitcoin’s business is actually relatively simple.It only involves the generation and transfer of cryptocurrency, it only need to determine in advance the amount of crypto distribution, distribution logic, as well as the basic rules of the transfer and transaction.

DeFi is decentralized finance, and finance is a very complex thing, involving a lot of rules, risk control, complex pricing models.It is difficult to understand the logic behind it without deep professional knowledge.

So if DeFi Finance needs to change the rules, it must respect the views of the professionals.If ordinary users were allowed to vote directly, a single misdecision could plunge the project into the abyss of doom.So in more specialized areas, too much decentralization and too much focus on listening to the market may not be a good thing.

Professionals are always in the minority.If we respect the views of professionals, it will inevitably increase the degree of centralization.

3. Most DeFi projects will have both centralized management and decentralized governance, collectively called “progressive governance.”

On the one hand, the underlying business of the project can be decentralized.On the other hand, the project in the strategic level, the governance level of things need to be centralized.How do they connect?”Incremental governance” is a good word to sum up.

Since the underlying business can be completely decentralized, and it is indeed more efficient and cheaper and safer to do so, let’s completely decentralize the underlying business;

If some middle-level businesses can also be decentralized, we will try our best to do so and enjoy the convenience and security brought by decentralization.

For those that cannot be completely decentralized and rely on a few professional decisions and flexible adjustment strategies, let’s keep the centralized management component in place for the time being.This allows us to maintain greater flexibility when it comes to direction choices.

This is a more realistic approach and makes it easier for DeFi to better serve real life.

Most DeFi projects now have very weak decentralized attributes, basically letting the project side change the rules, but they rely on a public chain released with strong decentralized attributes, which leads to the misconception of decentralization.

About ZB Group

ZB Group was founded in 2012 with the goal of providing leadership to the blockchain development space and today manages a network that includes digital assets exchanges, wallets, capital ventures, research institutes, and media. The Group’s flagship platform is ZB.com, the industry leading digital asset exchange. The platform launched in early 2013 and boasts one of the world’s largest trading communities.

ZB Group also includes ZBG the innovative crypto trading platform, and BW.com, the world’s first mining-pool based exchange. Other holdings include wallet leader BitBank, as well as exchange brands ZBM, ZBX and Korea’s Bithi.

Industry intelligence and standards are headed by the recently launched ZB Nexus who embody the core values of ZB Group and open source their reports and analysis for the public.

Learn more about ZB Exchange by visiting www.zb.com

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ZB.com is the world’s most secure digital trading platform, facilitating the trade and management of digital assets from all corners of the globe.

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